Coastal Luxury Management Inc. v. Commissioner , 2019 T.C. Memo. 43 ( 2019 )

T.C. Memo. 2019-43
UNITED STATES TAX COURT
COASTAL LUXURY MANAGEMENT INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24206-16L. Filed April 29, 2019.
Timothy S. Vick and Jeannette K. Witten, for petitioner.
Jeffery D. Rice and Janice B. Geier, for respondent.
MEMORANDUM OPINION
VASQUEZ, Judge: In this collection due process (CDP) case, petitioner
seeks review pursuant to section 6330(d)(1)1 of the determination by the Internal
1
All section references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
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[*2] Revenue Service (IRS or respondent) to uphold a notice of intent to levy. The
issue for decision is whether respondent’s settlement officer (SO) abused her
discretion in rejecting petitioner’s proposed installment agreement and sustaining
the proposed collection action.
Background
Some of the facts have been stipulated and are so found. We incorporate
the stipulation of facts and the attached exhibits by this reference. Petitioner is a
hospitality management company that operates food and wine festivals in
California. At the time the petition was timely filed, petitioner’s principal place of
business was California. Petitioner’s chief executive officer was David Bernahl at
all relevant times.
This case relates to petitioner’s outstanding tax liabilities from Forms 940,
Employer’s Annual Federal Unemployment (FUTA) Tax Return, for tax years
2011 and 2012. Also at issue are petitioner’s outstanding employment tax
liabilities from Forms 941, Employer’s Quarterly Federal Tax Return, for the
following quarters:
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[*3] Mar. 31 June 30 Sept. 30 Dec. 31
--- --- 2012 2012
2013 2013 2013 2013
2014 2014 2014 2014
On October 27, 2015, respondent mailed petitioner a Letter 1058, Final
Notice–Notice of Intent to Levy and Notice of Your Right to a Hearing, for the
Form 940 and Form 941 liabilities. According to the Letter 1058, petitioner’s
liabilities totaled $1,403,904.33.
Petitioner timely submitted a Form 12153, Request for a Collection Due
Process or Equivalent Hearing. Therein petitioner’s counsel checked the box for
an installment agreement and did not dispute the underlying liabilities or request
any other relief. Petitioner’s counsel also stated on the form that petitioner was
behind on its tax obligations because an employee had embezzled funds.
Petitioner’s case was assigned to SO Deborah J. Cartwright. In a letter to
petitioner dated January 6, 2016, SO Cartwright scheduled a CDP hearing for
March 10, 2016. SO Cartwright’s letter advised petitioner that to qualify for a
collection alternative it had to provide to her, at least 14 days before the hearing,
the following: (1) a completed Form 433-B, Collection Information Statement for
Businesses, (2) petitioner’s Form 940 for 2013, and (3) evidence that it had made
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[*4] the required Federal employment tax deposits for the current taxable period.
Petitioner did not provide SO Cartwright any of the requested documents before
the scheduled hearing.
On March 10, 2016, SO Cartwright conducted a telephone hearing with
petitioner’s counsel. SO Cartwright advised petitioner’s counsel that petitioner
needed to provide the SO with its missing tax returns,2 Form 433-B, and
installment agreement proposal. SO Cartwright set a deadline of April 11, 2016,
for providing the documents. Later that day petitioner’s counsel faxed SO
Cartwright a completed Form 433-B and copies of the requested tax returns. Over
the next few weeks, SO Cartwright and petitioner’s counsel had numerous
exchanges regarding additional missing tax returns. Petitioner’s counsel provided
SO Cartwright copies of the requested returns.
On June 2, 2016, SO Cartwright made a preliminary determination that
petitioner was in filing compliance. However, petitioner had yet to provide her
with a specific installment agreement proposal. In a letter to petitioner dated June
2, 2016, SO Cartwright requested a proposal with “a specific dollar amount”. On
2
SO Cartwright’s prehearing review of respondent’s records indicated that
petitioner had failed to file several returns.
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[*5] June 20, 2016, SO Cartwright received a fax from petitioner’s counsel
proposing a monthly payment of $500.
In September 2016 SO Cartwright reviewed petitioner’s Federal tax deposit
compliance. According to respondent’s records, petitioner had not made any
Federal tax deposits for its employment tax liability for the period ending
September 30, 2016 (9/30/2016 deposits). In a letter to petitioner dated September
12, 2016, SO Cartwright requested proof that petitioner either had made the
9/30/2016 deposits or was not required to make them. SO Cartwright set a
deadline of September 26, 2016. A week later, SO Cartwright received a fax from
petitioner’s counsel requesting a status update on the proposed payment plan. The
fax did not mention the 9/30/2016 deposits.
On September 20, 2016, SO Cartwright faxed petitioner’s counsel another
letter requesting information about the 9/30/2016 deposits. SO Cartwright stated
in her letter that petitioner had been assessed a Federal tax deposit penalty for the
previous quarter ending June 30, 2016, and owed a large balance for that quarter.
She reminded petitioner’s counsel of the September 26, 2016, deadline and stated
that she would issue a closing letter if she did not receive information by that date.
The following day petitioner’s counsel called SO Cartwright and requested a one-
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[*6] week extension to allow time for petitioner to catch up on the 9/30/2016
deposits.3 SO Cartwright granted the extension.
SO Cartwright received no further word from petitioner or its counsel. On
October 4, 2016, the SO reviewed respondent’s computer records and saw that no
deposits had been made. SO Cartwright verified that the assessments of the
liabilities at issue were properly made and that all other requirements of applicable
law and administrative procedure had been met. She closed the case and issued to
petitioner a notice of determination dated October 12, 2016, sustaining the notice
of intent to levy.
Petitioner timely petitioned this Court with respect to the notice of
determination. After the case was tried in San Francisco, California, the Court
ordered the parties to file simultaneous briefs. Respondent timely filed a
simultaneous opening brief. Petitioner, which is represented by counsel, failed to
file a brief as directed by the Court.4
3
Petitioner’s counsel stated that petitioner was attempting to sell an asset,
the proceeds of which would cover its current deposit obligations and a portion of
its outstanding tax liabilities.
4
When a party fails to file a brief, such a failure has been held by this Court
to justify the dismissal of all issues as to which the nonfiling party has the burden
of proof. See Rule 123; Stringer v. Commissioner, 84 T.C. 693 (1985), aff’d
without published opinion, 789 F.2d 917 (4th Cir. 1986). Nevertheless, we will
(continued...)
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[*7] Discussion
I. Standard and Scope of Review
Section 6330(d)(1) does not prescribe the standard of review that this Court
should apply in reviewing an administrative determination in a CDP case. The
general parameters for such review are marked out by our precedents. Where the
validity of the underlying tax liability is at issue, the Court reviews the
Commissioner’s determination de novo. Goza v. Commissioner, 114 T.C. 176,
181-182 (2000). Where, as here, the underlying tax liability is not at issue, the
Court reviews the Commissioner’s determination for abuse of discretion. See id.
at 182. Abuse of discretion exists when a determination is arbitrary, capricious, or
without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301,
320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
The Court of Appeals for the Ninth Circuit, to which an appeal in this case
would lie absent a stipulation to the contrary, has limited the review of the
administrative determinations in CDP hearings to the administrative record. See
Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009) (“[O]ur review is
confined to the record at the time the Commissioner’s decision was rendered.”),
4
(...continued)
exercise our discretion not to do so here and instead proceed on the merits.
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[*8] aff’g in part as to this issue T.C. Memo. 2006-166 and aff’g in part, vacating
in part decisions in related cases. Accordingly, we will not look beyond the
administrative record in deciding whether SO Cartwright abused her discretion in
sustaining the notice of intent to levy.
II. Analysis
In deciding whether the SO abused her discretion in sustaining the proposed
collection action, the Court considers whether she: (1) properly verified that the
requirements of any applicable law or administrative procedure have been met,
(2) considered any relevant issues petitioner raised, and (3) determined whether
“any proposed collection action balances the need for the efficient collection of
taxes with the legitimate concern of * * * [petitioner] that any collection action be
no more intrusive than necessary.” See sec. 6330(c)(3). Our review of the record
reveals that SO Cartwright properly discharged all of her responsibilities under
section 6330(c).
In its hearing request petitioner expressed interest in a collection alternative,
specifically, an installment agreement. Section 6159 authorizes the Commissioner
to enter into an installment agreement if he determines that it will facilitate full or
partial collection of a taxpayer’s unpaid liability. See Thompson v.
Commissioner, 140 T.C. 173, 179 (2013). Subject to exceptions not relevant here,
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[*9] the decision to accept or reject an installment agreement lies within the
Commissioner’s discretion. See sec. 301.6159-1(a), (c)(1)(i), Proced. & Admin.
Regs.; see also Rebuck v. Commissioner, T.C. Memo. 2016-3; Kuretski v.
Commissioner, T.C. Memo. 2012-262, aff’d, 755 F.3d 929 (D.C. Cir. 2014). In
reviewing the SO’s determination we do not independently evaluate what would
be an acceptable collection alternative. Thompson v. Commissioner, 140 T.C.
179; Murphy v. Commissioner, 125 T.C. 320; Lipson v. Commissioner, T.C.
Memo. 2012-252. Rather, our review is limited to determining whether SO
Cartwright abused her discretion, that is, whether her decision to reject petitioner’s
proposal was arbitrary, capricious, or without sound basis in fact or law. See
Thompson v. Commissioner, 140 T.C. 179; Murphy v. Commissioner, 125 T.C.
at 320.
In rejecting petitioner’s proposed installment agreement, SO Cartwright
noted that petitioner was not in compliance with its current Federal employment
tax deposit obligations. Established IRS policy requires taxpayers to be in
compliance with current filing and estimated tax payment requirements to be
eligible for collection alternatives. See Reed v. Commissioner, 141 T.C. 248,
256-257 (2013). Generally, current compliance with tax laws is a prerequisite to
being eligible for collection alternatives. See Cox v. Commissioner, 126 T.C. 237,
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[*10] 257 (2006), rev’d on other grounds, 514 F.3d 1119 (10th Cir. 2008).
Accordingly, SO Cartwright was well within her discretion to reject petitioner’s
request for an installment agreement for its failure to remain in compliance with
current tax obligations. See Giamelli v. Commissioner, 129 T.C. 107, 111-112
(2007); see also Christopher Cross, Inc. v. United States, 461 F.3d 610, 613 (5th
Cir. 2006) (finding no abuse of discretion when SO rejected offer in compromise
because taxpayer was not in compliance with its tax payment obligations); Reed v.
Commissioner, 141 T.C. 257 (same).
In its pretrial memorandum petitioner argues that SO Cartwright contributed
to petitioner’s inability to stay current on its employment tax deposit obligations
by refusing to consider petitioner’s “financial quagmire”. See Alessio Azzari, Inc.
v. Commissioner, 136 T.C. 178, 193-194 (2011) (holding that SO’s rejection of
taxpayer’s installment agreement request for failure to make Federal tax deposits
was an abuse of discretion because SO’s misinterpretation of law interfered with
taxpayer’s ability to make deposits). Having failed to raise this argument on brief,
petitioner has abandoned it. See Thiessen v. Commissioner, 146 T.C. 100, 106
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[*11] (2016) (“[I]ssues and arguments not advanced on brief are considered to be
abandoned.”).5
Finding no abuse of discretion in any respect, we will sustain the proposed
collection action.
In reaching our holding, we have considered all arguments made, and to the
extent not mentioned, we consider them irrelevant, moot, or without merit.
To reflect the foregoing,
Decision will be entered for
respondent.
5
In any event the administrative record establishes that SO Cartwright
considered petitioner’s financial circumstances and granted petitioner’s counsel’s
request for a one-week extension of the deadline for submitting information about
the 9/30/2016 deposits. Petitioner did not make the deposits or contact SO
Cartwright by the extended deadline. Under these circumstances SO Cartwright
acted well within her discretion to close the case and sustain the proposed
collection action.